Japan Embraces Faster Pace for Secondary Offerings

“Abenomics”-fueled gains in the stock market have enabled a small but growing number of Japanese companies to push out secondary share offerings quickly, sometimes within a day, to avoid the sharp price declines that usually precede slower-paced offerings.

Japanese companies have raised $2.04 billion via six accelerated deals this year, the most by value in any full year since 2006, data from Dealogic showed.

That is a fraction of the $23.87 billion raised in all secondary offerings in Japan this year, but it is more than five times the $395 million raised via three accelerated deals in 2011 and 2012 combined, Dealogic data showed.

“It’s still in the early development phase. But [an accelerated offering] is becoming a practical option,” said Kenichi Onuma, head of equity capital markets at Barclays PLC in Japan.

Secondary share offerings—in which listed companies sell either new shares or those of a major stakeholder—normally take around two weeks to complete as companies seek buyers and price the shares. During that time, the companies often see their traded share price decline sharply because the offering dilutes the holdings of existing shareholders.

To avoid such declines and the resulting loss of capital, some are now using accelerated bookbuilding, in which the shares are sold within a day or two, sometimes to the underwriters themselves.

This faster method is widely used in the U.S. and Europe but has been rare in Japan. That is because Japanese law prohibits investment banks from approaching domestic investors to gauge demand before launching an offering. That leaves foreign institutional investors, who account for more than 60% of trading by value on the Tokyo Stock Exchange, as the only possible buyers in accelerated share offerings, in which judging demand ahead of time is critical to the sellers’ confidence that the shares will be purchased.

But foreign institutions’ appetite for Japanese stocks had long been weak, until the optimism inspired by the economic policies of Prime Minister Shinzo Abe—which have become known a Abenomics—sparked a stock market rally beginning late last year. The Nikkei Stock Average is up 57% since mid-November.

With more foreign investors looking to buy, Japanese companies are now more willing to try an accelerated deal.

Barclays, for example, handled accelerated block trades earlier this month of shares in online game company Nexon Co. and Aozora Bank Ltd. that raised a combined $377 million.

A spokesman at Nexon said company founder Kim Jung-Joo saw the accelerated deal as the easiest option, because the size of the offering was small.

Private-equity firm Cerberus Capital Management, which sold the shares in the Aozora offering, couldn’t reached for comment.

An Aozora spokesman said the company wasn’t able to comment on why Cerberus chose an accelerated block trade.

In late May, Sumitomo Mitsui Trust Holdings Inc. surprised the market by raising nearly ¥94 billion ($952 million) in the biggest accelerated offering ever by a Japanese issuer. The deal, handled by Goldman Sachs Group Inc. and J.P. Morgan Chase & Co., was priced within 24 hours.

“We chose this option to minimize market risk, since the pricing period is short. We wanted to implement it as quickly as possible while the market environment was still good,” a Sumitomo Mitsui spokesman said.

The rising interest in quick offerings also follows a number of insider-trading scandals during previous secondary sales. Last year, Japanese regulators discovered that salespeople at multiple brokerages leaked confidential information ahead of four traditional secondary share sales in 2010.

In those cases, those who received the information shorted the stock—or bet that its price would decline—and all the companies saw their share price tumble before their plans were even announced.

Bankers say the scandals made some Japanese companies even more reluctant to issue large secondary offerings that might weigh heavily on their share price.

Still, the growth of accelerated secondary share sales will remain limited by the law that effectively restricts buying to foreign institutions, said Toru Fukuda, head researcher at Japan Securities Research Institute and a former banker at Daiwa Securities Group Inc. And even if Japanese investors were allowed to participate, it would be difficult to attract Japanese institutions, he said.

“In face of the current reality, where public offerings are consumed 70% to 80% by retail investors, there aren’t that many [Japanese] institutional investors that are willing to buy a chunk of shares,” Mr. Fukuda said.